When considering shareholder value...don't lose sight of the fundamentals

New Senior Vice President Andrew Swiger says ExxonMobil’s sustained success has a lot to do with the basics of smart, welltrained people astutely managing risk and working to squeeze more performance out of every asset.

The essential elements behind a company’s success year in and year out often don’t grab business news headlines and understandably might go unnoticed by the investing public.

“Nevertheless,” says Andrew Swiger, newly elected senior vice president of Exxon Mobil Corporation, “that doesn’t make them any less important, especially considering how those fundamentals have contributed to keeping ExxonMobil at the top of the oil and gas industry for more than 125 years.”

With his appointment to the corporation’s Management Committee, Swiger became the contact executive for ExxonMobil Production Company, ExxonMobil Gas & Power Marketing Company and Imperial Oil Limited in Canada, as well as for Safety, Security, Health and Environment.

“Simply put, our success comes out of the day-to-day work of making our businesses better,” says Swiger. “But, of course, it’s not simple. In Production, for instance, it’s about the fundamentals of squeezing more barrels, more costs, more performance out of every field, and ExxonMobil has done that very well for a very long time.”

He understands that some people might find improving field performance less interesting than drilling a wildcat well or building a new facility; however, a look at ExxonMobil’s global oil and gas production provides some perspective.

“We produce an average of nearly 4 million oil-equivalent barrels a day,” he says. “Every 1 percent improvement in operating uptime can add another 40,000 oil-equivalent barrels of production. Now, 1 percent at first glance might seem inconsequential; however, when applied to a company as large as ExxonMobil, that’s a lot of oil and gas without requiring additional capital.”

As proof of just how well the company manages its portfolio, uptime at ExxonMobil-operated fields over the past four years has averaged 2 percent higher than fields operated by others.

“That difference represents an impressive value for shareholders,” Swiger says.

Improvement potential unlimited
Swiger adds that assets are stewarded with the attitude that improvements can always be achieved.

“There is huge potential to learn from best practices around the world,” he says. “Perhaps it’s a better way to replace a pump or a more efficient practice for completing a well. If it’s a good idea, we perfect and apply it around the global circuit.”

This basic focus enables the company to empower employees who have the experience, knowledge and passion to help the company succeed. “When you get all those brains and all that energy and experience working on improvements, you can achieve exceptional results,” he notes.

Those results are a testament to a business “fact of life” that Swiger says is also often under-appreciated.

“An important reason ExxonMobil has been more successful than its competitors is that we have done a better job of managing risk. We take a disciplined, structured approach to eliminate as much risk as  we can from decisions before making the final judgment as to whether we proceed or not.”

Living with cycles
One other fact of life about the oil and gas business is that it operates in a continual combination of external cycles — commodity-price, business and political — all fluctuating at the same time. Swiger says there is a tendency for those outside the industry, or new to it, to look at a cycle movement and conclude, “It is different this time.”

“But cycle changes are not new, and they’re not predictable. You have to run your business with the understanding that prices go up and prices go down, economies strengthen and economies weaken, as has recently occurred. You have to accept that, and remain focused on the fundamentals.

“However, what you really want to keep in mind is that during your career or the life of a project, there can be game-changers, too. In our industry, these are often technology-driven, such as 3-D seismic or horizontal drilling. You had better be able to recognize real change so you can competitively stay ahead of the game.”

Unconventional game-changer
A good example of a potential step-change in the making is the growing activity in new unconventional shale plays in North America, such as the Marcellus in the U.S. Northeast and the Haynesville in northern Louisiana. Another is the Horn River basin in British Columbia, where ExxonMobil has established a major lease-hold position.

Swiger says the industry may find there’s a lot more commercial natural gas locked in these areas than anyone ever thought possible.

A key question about shale and other unconventional plays will be whether a company has the technology to turn them into profitable opportunities. Swiger notes that technology advances ExxonMobil has perfected in producing unconventional natural gas from tight-sands formations in Colorado’s Piceance Basin should prove advantageous. This is a world-class resource with the potential to provide as much as 45 trillion cubic feet of gas supply to the United States.

Environmental and safety mind-sets
Also underlying ExxonMobil’s success has been its unwavering commitment to environmentally responsible and safe operations.

“For example,” Swiger notes, “water use is a big focus for us, and not only for unconventional projects like Piceance but for all of our operations. We give priority to planning how we can most efficiently use water and best protect it. Technology, as with so much of our business, is critical to this, and we’ll see new technology breakthroughs as the focus on water use grows. In addition, we will continue to combine input from local communities and regulatory authorities with our experience and technology to arrive at the best solutions.”

He emphasizes that the company approaches this and all environmental issues with a mind-set that we must steward these resources responsibly.

The same applies for safety. Because of its insistence that rigorous safety precautions are taken by all of its employees at all of its facilities worldwide, ExxonMobil regularly sets industry benchmarks for excellence in this area.

“There is no such thing as an unpreventable accident,” Swiger says. “All accidents are preventable, and that’s a cultural mind-set that has become established throughout ExxonMobil. It has led to a culture in which employees care about the safety of fellow employees, contractors, visitors and anyone around them as much as their own.”

Why the merger succeeded
Concern for people was something that struck Swiger about the new organization following the Exxon and Mobil merger. As production advisor at ExxonMobil headquarters following the merger, he had an opportunity to see the governance of the new company up close.

“I think as business schools develop case studies of the merger, they will determine that it was one of the most successful — if not the most successful — ever completed. The reason that so many mergers fail is because of a focus on the assets, with little thought to people. To their great credit, ExxonMobil senior management took care in designing and implementing the new organization and setting the right tone.

“When you talk about fundamental values, nothing is more pertinent than treating people right and allowing them to develop to the best of their abilities.”